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| Frank, Julieta; Garcia, Philip. |
| Liquidity costs in futures markets are not observed directly because bids and offers occur in an open outcry pit and are not recorded. Traditional estimation of these costs has focused on bidask spreads using transaction prices. However, the bid-ask spread only captures the tightness of the market price. As the volume increases measures of market depth which identify how the order flow moves prices become important information. We estimate market depth for lean hogs and live cattle markets using a Bayesian MCMC method to estimate unobserved data. While the markets are highly liquid, our results show that cost- and risk-reducing strategies may exist. Liquidity costs are highest when larger volumes are traded at distant contracts. For hogs the market becomes... |
| Tipo: Conference Paper or Presentation |
Palavras-chave: Bayesian MCMC; Lean hog futures; Liquidity cost; Live cattle futures; Market depth; Market microstructure; Agricultural Finance. |
| Ano: 2008 |
URL: http://purl.umn.edu/37613 |
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| Frank, Julieta; Garcia, Philip. |
| Understanding the determinants of liquidity costs in agricultural futures markets is hampered by a need to use proxies for the bid-ask spread which are often biased, and by a failure to account for a jointly determined micro-market structure. We estimate liquidity costs and its determinants for the live cattle and hog futures markets using alternative liquidity cost estimators, intraday prices and micro-market information. Volume and volatility are simultaneously determined and significantly related to the bid-ask spread. Daily volume is negatively related to the spread while volatility and volume per transaction display positive relationships. Electronic trading has a significant competitive effect on liquidity costs, particularly in the live cattle... |
| Tipo: Conference Paper or Presentation |
Palavras-chave: Bayesian estimation; Bid-ask spread determinants; Liquidity cost; Livestock Production/Industries; Marketing. |
| Ano: 2009 |
URL: http://purl.umn.edu/49575 |
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